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While the world was focused on Wednesday’s record IEA reserve release, a more structural number was already on the table. Saudi Arabia, Iraq, the UAE, and Kuwait have collectively cut output by as much as 6.7 million barrels per day, roughly 6% of global supply and about a third of their combined production. That cut isn’t a policy decision. It’s a physical consequence of a closed strait and tanks that are running out of space to store oil that has nowhere to go.
Why Producers Are Cutting When Prices Are at $90+
The logic sounds counterintuitive. Oil is above $90, Brent briefly touched $99 overnight, and Gulf producers are reducing output. But the price signal is irrelevant when you can’t ship the barrel. The Strait of Hormuz has been effectively closed since the strikes on February 28. With tanker traffic at a standstill, crude is accumulating in onshore storage across the Persian Gulf at a rate that has no precedent. Once tanks are full, fields have to slow down or stop entirely, regardless of what oil trades for on the screen.
Iraq has made the deepest cuts. Its output has fallen from around 4.3 million barrels per day pre-conflict to approximately 1.2 to 1.4 million barrels per day, a drop of nearly 70%, according to Bloomberg and Iraq’s oil ministry spokesman Sahib Al-Hasnawi. Saudi Arabia has reduced output by 2 to 2.5 million barrels per day, Bloomberg reported Tuesday, citing people familiar with operations who asked not to be identified. The UAE has cut 500,000 to 800,000 barrels per day, Kuwait around 500,000. The cuts are preemptive in some cases: analysts at Kayrros estimate the four Gulf producers collectively have just over 100 million barrels of storage capacity remaining, roughly a third of their total, leaving Saudi Arabia more time than its neighbors before a forced shutdown. Saudi Arabia’s largest refinery is already closed after sustaining damage earlier in the conflict, compressing the kingdom’s capacity to process what it does produce.
Saudi Arabia’s Red Sea Workaround and Its Limits
Saudi Arabia is doing what it can to route around the blockage. Red Sea shipments from its western terminals have averaged around 2.2 million barrels per day so far this month, a record pace, according to LSEG ship-tracking data cited by Reuters. But context matters here. Saudi Arabia normally sends around 6 million of its roughly 7 million barrels per day of exports through the Strait of Hormuz, per Reuters and IEA data. Iran ships virtually all of its exports through it. Kuwait and Qatar also depend on the Strait for essentially all of their export volume. Iraq relies on it for the vast majority of its shipments. The UAE has the most flexibility, with Abu Dhabi’s pipeline to Fujairah allowing it to bypass the Strait for a portion of its exports, but the IEA estimates combined available bypass capacity across Saudi Arabia and the UAE at only 3.5 to 5.5 million barrels per day — well short of the Strait’s normal throughput.
The Red Sea rerouting buys Saudi Arabia some time. It doesn’t come close to replacing what the Strait normally moves. The IEA’s 400 million barrel release amounts to roughly four days of global production and 16 days of normal Hormuz crude and products volume, according to Macquarie analysts. The Gulf production cuts are running at 6.7 million barrels per day of lost supply. That’s a net loss of more than 6 million barrels every day the strait stays closed, against a one-time reserve release. The math doesn’t recover.
The Storage Problem Compounds
The deeper issue is what happens when storage fills completely. JPMorgan estimated earlier this month that Saudi Arabia would exhaust its oil and fuel storage capacity in over two months from the start of the conflict, while Iraq would reach that point in roughly a week and Kuwait in two. Both Iraq and Kuwait started cutting before those timelines. Once onshore tanks hit capacity, producers face two options: shut fields down entirely, which risks permanent damage to reservoir pressure in some formations, or find alternative routes fast enough to keep up with production. Neither is happening at the required speed.
Aramco CEO Amin Nasser has called this the biggest crisis the region’s energy industry has ever faced, warning of “catastrophic consequences for the global oil market” if export routes remain blocked. The IEA’s March 2026 Oil Market Report, released Thursday, confirmed export volumes across crude and refined products are currently below 10% of pre-war levels, and estimates at least 8 million barrels per day of crude shut in across the region, with a further 2 million barrels per day of condensates and natural gas liquids also offline. That figure covers both the production cuts and the shipping paralysis together. It means the Gulf, which normally exports roughly a fifth of global oil through the Strait, is operating at a fraction of its capacity with no clear timeline for restoration.
What It Means for the Price Ceiling
Brent closed Wednesday at $91.98 and is trading near $99 in early Thursday Asian session, per Bloomberg. The question the market is now pricing is not whether oil stays above $90 but how quickly it returns to $100-plus if no shipping resolution emerges. The Strait doesn’t only move crude: LNG, refined products, and fertilizers are all caught in the same blockage, broadening the inflation channel well beyond gasoline prices.
Goldman Sachs raised its Q4 2026 Brent forecast to $71 per barrel on Thursday, up from a prior estimate of $66, according to Reuters. But that figure is still a projection for year-end after an assumed 21-day disruption followed by a 30-day gradual recovery. With Brent currently near $92 to $99, the bank’s base case implies a significant easing of the crisis before December. Goldman expects the March and April average alone to run at $98. That is a bet on a specific political outcome in a war that, as of Thursday, the U.S. says it intends to finish. Every day the tanks fill faster is a day that bet gets more expensive to hold.
